Tax Time Tips

Ray’s Take: It’s that time of year when many people find themselves scrambling through file cabinets, sorting through stacks of papers and gathering receipts in preparation for filing their yearly tax return. If you are unhappy with the lack of organization in your tax preparation, that could be your resolution for the coming year.


In a perfect world, your refund should be minimal, if you get one at all. Your personal situation will determine how accurately you can calculate your total tax liability for the year.


If you estimate your refund to be substantial, you may be over-withholding (giving the IRS an interest-free loan and missing out on last year’s market gains). If you are overpaying, the easiest correction is to complete a new W-4 form through your employer. If you’d like to get some extra money back each paycheck, increase the number of withholding allowances you claim.


If your refund is more reasonable in size, you are right on track. But don’t run out and spend it all in one place. Create a savings/spending “contract” with yourself. Commit to a fixed percent of certain windfalls (bonus, tax refund, etc.) that must be saved and the rest you can spend guilt-free.


It’s important to remember that the personal exemption, under the new tax bill, will disappear starting with 2018 taxes, but it still operates for your 2017 taxes according to the number of withholding allowances you claimed on your W-4 form.


And don’t wait until the last minute to file your return. This can set you up for a late-filing penalty of up to 5 percent of the amount due every month. Avoid the common mistake of thinking that getting an extension means that you don’t have to pay your tax bill in April; you will still owe interest and a late-payment penalty.


Dana’s Take: If you had a toothache, would you pull your own tooth? Unlikely. So why do non-accountants file their own taxes?


When I was single, I filed my own taxes. I didn’t know that emptying my 401(k) to buy a used Honda Civic was a big no-no. Well, the IRS took their sweet time to discover my error. The penalties and interest they charged me totaled more than the cost of the car.


Now, I pay a dentist to pull teeth and an accountant to file my taxes.


I know that CPAs charge a lot of money. But not only will they save you penalties and jail time, a CPA will provide you with organizing tools to make your job, and theirs, much easier. Most everything is handled via email.


I remember my father sitting at his desk preparing our taxes, looking miserable and overwhelmed. If you can afford it, give yourself a break and hire a CPA. He or she might even save you some money.


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Setting Financial Goals

Ray’s Take: A new year for many brings with it thoughts of New Year’s resolutions. Whether it’s stopping smoking, losing weight, saving money or spending less time at work, resolutions too often feel negative or depriving. Instead of talking about “making resolutions,” we should be talking about “setting goals.”


One of the most important things you can do to set yourself up for financial success is to set financial goals each year. There are a lot of people who make lots of money but wind up broke because they did not set financial goals and manage their money accordingly along the way.


These goals should not be vague. Your goal should not be to be “rich” or to retire “someday.” It should be to retire on a specific date with a certain amount of resources. If you want a vacation home, your goal should be to buy the home at a specific location, costing a specific amount, by a specific date.


Once you create your goals, then you can start working backward to create the plan to get there.


Success is rarely a sudden event. It is a series of consistent choices. Think of small things you can do each month to help you reach your ultimate financial destination. And don’t forget to create measurable goals so that you can keep track of how you are doing and build off your success or clearly see areas that need to be reevaluated or improved upon.


Review your financial goals at least once a year. Some things that may have been important at the first of the year may not be important by the end of the year. And some goals you set in your 40s may not be important in your 60s. Your financial goals will change, so review them periodically to ensure you are on the right track.


Dana’s Take: On cold winter days, I dream of sugar-white beaches. It’s a pre-retirement fantasy of spending more long weekends in sunny places. I guess you could call that a financial goal. So, I must ask myself, “What I can do now to make those dreams a reality?”


First, I could delay replacing my car. Even though the car has passed its 10-year birthday, it works great and I could drive it for at least another year.


Second, I may be investing too much in renovations and redecorating of our Memphis home. I could free up some of that cash for a sandcastle on the beach.


Third, I can look in the trash. What am I giving away to Goodwill that I can stop buying in the first place? Target and Amazon impulse purchases will be a good starting point.


By reining in home renovations, car purchases and impulse shopping, I can already smell the sea. I’ll see you there.


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Job Hopping and Your Retirement Plans

Ray’s Take: There was a time when you worked your entire career at one company and retired with a pension and a gold watch after 40 or so years of service. But, like so many things, that picture has changed over the years. Job hopping – once a red flag on your resume – is now the norm.


In the short term changing jobs can be a winning proposition. It’s a quicker way to move up the ladder and often offers quick cash incentives. Changing jobs can work in your favor. But before you jump on the opportunity, stop and do the math on some important factors that may impact you negatively down the line.


The first thing to assess is how long have you been at your current company. Some companies require you to work for them for a specific period of time before you can contribute to a 401(k). And once you’ve hit that number of years, many require you to remain for a specific number of years, usually five, in order to keep any company matching contributions. Are you losing retirement savings money by making the change to another employer? Review other benefits as well. Health insurance, life insurance, disability insurance, HSA’s all cost money. Some companies short on those “boring” details in order to “fluff up” that salary number.


According to the Bureau of Labor Statistics, workers currently stay at a job for 4.4 years. So if you’re at any company that requires five years to keep your company matching funds, the odds are that you will never see that money. That can really add up over time. If you do leap, be sure to move your retirement account with you.


There are alternatives to company sponsored 401(k) plans to start putting money aside for your independence. It’s important to create a retirement saving plan early and stick to it. The earlier you start, the better off you will be once you close in on retirement. It’s hard to make up money lost by not saving early. And even harder to be old and broke.


Dana’s Take: Young people entering the job market now have never seen the 40-years-and-a-gold-watch retirement plan. For most of them, their experience with the working world is watching their parents struggle with being downsized. So it’s really no surprise that they have a different mindset toward employment than previous generations.


That experience created a sense that companies are not loyal to their employees. And so, why should the employee be loyal to the company in this new world view. It’s become kind of a chicken and the egg conundrum. Which came first?


Whether working in the gig economy or for a lifetime employer, saving for the future is something that never changes, and being smart about it won’t go out of style.


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Midlife Look at Insurance Needs

Ray’s Take: Life insurance is an important part of most overall financial plans. Replacing the capital value of the significant providers is critical should they not be able to provide. Owning the right insurance for the right price at the right time in your life is a crucial element to your financial well-being.


It’s usually true when you’re young and want to have a way to provide for your family in the event something happens to you. But as time goes by and you have saved and invested, by your 50s or 60s you may no longer need some types and as much of the coverage you’ve had.


Further, you could be overpaying for what you do need and might be inadvertently underinsured against some other risks.


As you start your flight path towards retirement you should consider ways to reduce risk while still preserving wealth. It may be time to reduce focus on life insurance and put it on health insurance and liability protection. The right coverage is crucial since, according to the Center for Disease Control and Prevention, three out of every four people age 65 or older have a chronic health condition.


Long-term care is something to be evaluated. These policies can help shield funds you intended to leave to loved ones.


While life insurance may no longer play as important a role as it once did, it still doesn’t mean that you don’t need it in some form. Take a look at your existing policies and see if they can be adjusted to meet current life needs – or needs you anticipate down the road a few years. As your wealth grows and your working career winds down, your need for liability increases as your need for life insurance goes down.


Re-shop homeowners and auto insurance at least every three years. You may be qualified for discounts related to age or no claims that you’re not getting. We tend to let these types of insurance policies just automatically renew without doing a review.


Working with a good financial adviser can help you to figure out what types of insurance, and how much, can take you comfortably into your retirement years.


Dana’s Take: Who’s driving the bus in your life? You? Your family? The fickle wind of life’s circumstances?


The best way to ensure your life is healthy and happy is to make sure you take care of yourself first. That sounds extremely selfish. But it’s counterintuitive. If you are not nourished and happy, you don’t have those things to give others.


Address any issues head on. And if you need professional help to handle them, then be sure to get it. Pick the one change you see that you feel would make the biggest positive impact on your life and go after it. Self-care is your best insurance.


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Stash More Cash

Ray’s Take: On the surface it seems simple. Most of us know we need to save more cash – especially to bolster an emergency fund. And yet savings are at historic lows and many are a couple of paychecks away from serious financial problems.


We believe we can just sweep that “leftover” cash from the month to our emergency fund, but somehow it’s just not there. We have had a robust economy for a good many years and many have forgotten how things go when we hit “bumps.”


Most Americans are willing to work and pay their bills, and that’s certainly a good start. The next step is to learn to “PYF.” Pay yourself first. Building more savings, like retirement accounts and college savings funds, must be treated like your mortgage and utility bills.


To save a significant amount of money, you have to make more than an intermittent effort. You have to make a lifestyle changes.


It seems simple and obvious, but writing down everything you spend is a great way to get a handle on where your money is going and spotting ways to make some changes that will open the door to more savings opportunities. Whether you do the list old-school style and write it in notebook or use an app, that visual creates a psychological cause and effect.


My bank is very old-school about one thing – they only let me spend a dollar once. Once it’s gone to my savings goal or creditor, there’s nothing left for eating out, going to Starbucks or the latest I gadget. The key is to start working backwards with the budget. Don’t start with the depravation of something, look at everything you are spending toward.


Try automating deposits from every paycheck and use only cash. You don’t spend money you don’t see in your account and by using cash instead of your debit card, you are more aware of spending.


Financial planning includes achieving long-term goals, but it’s also about making sure you have what you need in the short term too. Those dollars will add up much more quickly than you think.


Dana’s Take: My debit card cracked in early December and I had to order a replacement card. Due to mix-ups, I had to go without a debit card until Dec. 23. As a result, my holiday shopping became very inconvenient. I had to write checks at the bank, old school, if I wanted cash. It was like living in the 1950s with no card access to cash.


Turns out, slowing down access to money proved to be a good thing. If I ran out of cash, I couldn’t spend any more. In short, I had to plan my spending. And guess what? Little impulse purchases disappeared.


Consider hiding your debit card and see how much you can save in a month. Maybe grandfather knew best, after all.


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